Top small-cap analyst DeSanctis raises forecast for Russell 2000, saying 'don't fight the Fed'

Jefferies strategist Steven DeSanctis has increased his year-end 2025 target for the Russell 2000 to 2,665, forecasting an 8% upside and a 20.7% full-year return, driven by the Federal Reserve's recent rate cut and anticipated small-cap earnings growth of 5.5%, significantly above the 3.3% Street consensus. This bullish outlook follows the index's recent record highs and its outperformance of the S&P 500 over the past six months, with DeSanctis identifying specific small- and mid-cap names exhibiting strong earnings trends.

Analysis

A bullish outlook on small-cap equities has been reinforced by Jefferies strategist Steven DeSanctis, who raised the year-end 2025 target for the Russell 2000 index to 2,665, implying an 8% upside from recent levels and a 20.7% full-year return. This revision is primarily anchored to the Federal Reserve's recent quarter-point interest rate cut, aligning with a strategy of not fighting monetary policy easing. The case is further supported by a contrarian earnings forecast, with DeSanctis projecting 5.5% earnings growth for the index, significantly above the 3.3% consensus forecast, suggesting potential for positive surprises. This fundamental optimism is underpinned by strong technical momentum; the Russell 2000 recently achieved its first all-time closing high since November 2021 and has outperformed the S&P 500 over the past six months with an 18% gain versus the S&P's 17%. The strategist's stock selection methodology favors companies with positive earnings and stable estimates, citing AGCO and Boyd Gaming as examples that have already posted strong year-to-date performance of 17% and 14%, respectively.

Key Decisions for Investors

• Investors should consider increasing allocation to small-cap equities, as the combination of a dovish Federal Reserve, strong technical momentum, and a potential for above-consensus earnings growth creates a favorable backdrop for the Russell 2000.
• Focus stock selection within the small- and mid-cap space on companies exhibiting positive earnings trends and no downward estimate revisions, mirroring the criteria used to identify favored names like AGCO and Boyd Gaming.
• Monitor upcoming corporate earnings seasons closely to validate the strategist's 5.5% growth forecast; any significant deviation toward the lower consensus estimate of 3.3% could challenge the foundation of this bullish thesis.